Senators Manuel Roxas II and Ralph Recto were locked in debates on the extension of the SPV Act (Republic Act 9182) and while the former views the tax perks to banks unfair to taxpayers, especially with the higher VAT rate, the latter said the banking industry needs the law extended to dispose P100 billion more in non-performing assets.

"I have a basic hesitancy to provide additional tax incentives or a government handout to a sector that possibly does not need it as much at this time," Roxas argued before a recent Senate panel deliberating on the proposed extension of the SPV Act.

The law — enacted by Congress and signed into law by President Arroyo in December 2002, grants tax exemption and price discounts of 1 to 8 percent and fee privileges to SPVs that acquire or invest in NPAs.

According to Roxas, "we’re asking Juan de la Cruz to subsidize the cleaning up of banks’ balance sheets. Why is the government saying ‘we will collect on one hand the VAT from everybody but with the other hand — give now this amount to the banking sector."

Recto however argued that in other countries in the region, governments actually give banks "doleouts" and have collectively spent 0 billion to buy out problematic banks’ soured assets.

Recto also pointed out that tax breaks will not just benefit banks but also the borrowers who will be buying the NPAs. "These tax breaks are minimal," he said, or about 1-1.5 percent for SPV transactions for non-performing loans and 6-8 percent for ROPOA (real and other properties owned or acquired) disposal. Citing Bangko Sentral ng Pilipinas and Securities and Exchange Commission figures, he said under the SPVs, banks sold off P97 billion of bad assets creating 40 SPV units while P1.3 billion in paid-up capital was registered with the SEC.

The sponsor of the law, which is Recto, is pushing for the extension of the bill since the original law – which was supposed to help banks sell P200 billion in bad assets, managed to dispose only P100 billion because of the delay in the implementing rules and regulations. "So the effectivity of the law was in fact, only one year (because the IRRs came out late) and by extending it by two more years – we can expect to dispose P100 billion more."

Roxas counter-argued that right now, whether the SPV law is extended or not, the banking sector are cleaning up their balance sheets in compliance with the rules of the International Accounting Standards and the BSP implementation of the Basle II standards.

"(Banks) would have to clean up their balance sheets anyway (even without the SPV law)," said Roxas.

BSP Governor Amando M. Tetangco Jr. said SPVs, which buy bad assets at substantial discounts, and the continued delay in the proposed extension will have serious impacts on the banking system. Recent reports noted that the industry had combined NPAs, which increased from 27 percent of portfolio in 1997 to 47 percent last year.

Tetangco was hoping the SPV law will be extended by February however since debates are heating up, deliberations will be delayed further.

In the meantime Finance Secretary Margarito B. Teves – who wants his taxes collected to plug a budget deficit, said earlier that despite the tax breaks, extending the SPV Act should not cost the government much since it would help banks and the financial sector sell off their bad assets and in doing so, free up resources to lend to industries and other economic-moving sectors.

The SPV law expired last April 8, 2005.

Member banks of the Bankers Association of the Philippines has been urging Congress and the Senate to approve the extension since keeping their NPAs on their books is eroding their profits or earnings.

The SPV law extension is contained in House Bills 2311 and 3058. The bills are seeking to amend Section 6 of the law, which is the period of SPV application and registration. Section 15 of the SPV or tax exemptions and privileges and Section 26, or the cutoff date for bad assets eligible under SPV are also the changes that will be deliberated on.